Evidence for Establishing Connection Between Insiders

Author: thinkinglegal | July 1, 2020 - 19:19 | Tags: Regulatory Advisory

Securities Exchange Board of India (“SEBI”) vide order dated May 29, 2020 decided on the liability of Mr. Sanjay Tayal, his brother Mr. Navin Tayal, his wife Ms. Jyoti Tayal, Ms. Jyoti’s brother Mr. Rohit Gupta, M/s Advik Textiles and Realpro Pvt. Ltd. (“Advik Textiles”) and the Directors of Advik Textiles in respect of insider trading in the scrips of Bank of Rajasthan (“BoR”).

Facts: On May 07, 2010, discussions began over a proposed merger of BoR with ICICI Bank. On May 18, 2010 this information was communicated to the exchange at 5.12 pm by one of the directors of BoR, Mr. Sanjay Tayal. Mr. Rohit Gupta traded in the scrips of BoR between May 17, 2010 and May 18, 2010. He allegedly made gains amounting to Rs. 95,77,614.

Findings: It was held that the information communicated qualified as Unpublished Price Sensitive Information (“UPSI”) and the UPSI period was from May 07, 2010 to May 18, 2010. It was further observed that Rohit cannot be deemed to be a connected person as “wife’s brother” does not qualify as a “relative” in terms of the applicable law. However, Rohit was considered as an “insider” since he “has received or has had access to such UPSI”. In order to establish that Rohit was an “insider”, the evidence taken into account was the relationship Rohit shared with Sanjay, Jyoti and Navin. Rohit’s company and BoR were located at the same address, further corroborating the connection of Rohit with BoR. Further, the trading activities of Rohit showed that he did not trade in shares on regular basis and never traded in the shares of BoR. SEBI ordered and imposed a joint monetary penalty of Rs. 3,00,00,000 on all the noticees (except Sanjay who passed away in 2018) along with disgorgement of the gains made by Rohit.

TL Take: This case provides an illustration of the circumstantial evidences that SEBI considers while establishing a connection between the tipper and the tippee.

This post has been contributed by Ms. Vaneesa Agarwal and Ms. Sanyukta Srivastav.

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